microecon exam 3
The Tragedy of the Commons can be corrected by
assigning property rights to individuals
The fundamental reason that marginal cost eventually rises as output increases is because of
diminishing marginal product
When price is greater than marginal cost for a firm in a competitive market,
there are opportunities to increase profit by increasing production.
Producers have little incentive to produce a public good because
there is a free-rider problem
. Public schools, parks, libraries, and roads are paid for largely through tax revenue because
these goods create a free-rider problem.
excludable and rival in consumption
a wristwatch
firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to
increase
a production cost that has already been committed and cannot be recovered, they use the term
sunk cost
marginal revenue greater than marginal cost
produce more units
How long does it take a firm to go from the short run to the long run
It depends
Which parable describes the problem of wild animals that are hunted to the point of extinction?
The Tragedy of the Commons
Which of these assumptions is often realistic for a firm in the short run?
The firm can vary the number of workers it employs but not the size of its factory.
a tax where two people with the same total income would pay taxes of the same amount, and a high-income person would pay a higher fraction of income in taxes than a low-income person
a progressive tax
The resources that a taxpayer devotes to complying with the tax laws are a type of
administrative burden and deadweight loss.
Average total cost is very high when a small amount of output is produced because
average fixed cost is high
constant returns to scale
average total cost is constant as output rises
If marginal cost is equal to average total cost, then
average total cost is minimized.
The principle that people should pay taxes based on the benefits they receive from government services is called the
benefits principle.
marginal revenue =
change in total revenue / change in quantity
visitors to the park have to pay, but there are many empty picnic tables
club good
fire protection is a
club good, because it is excludable but not rival in consumption
public good but is busy
common resource
Goods that are rival in consumption but not excludable would be considered
common resources
Vertical equity states that taxpayers with a greater ability to pay taxes should
contribute a larger amount than those with a lesser ability to pay
a study to determine the value of the project
cost-benefit analysis.
When marginal cost is rising, average variable cost
could be rising or falling
If the total cost curve gets steeper as output increases, the firm is experiencing
diminishing marginal product
In designing a tax system, policymakers have two objectives that are often conflicting. They are
efficiency and equity
Elephants are endangered, but cows are not because
elephants are a common resource, while cows are private goods.
Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called
excise taxes
private and club goods are
excludable
average fixed costs =
fixed cost / output quantity
the total cost curve begin at the origin because
fixed costs are positive when output is zero
Competitive markets are characterized by
free entry and exit by firms
National defense is provided by the government because
free-riders make it difficult for private markets to supply the socially optimal quantity
Because the marginal tax rate rises as income rises,
higher income families, in general, pay a larger percentage of their income in taxes.
A tax that is higher for men than for women violates the criterion of
horizontal equity
The ability-to-pay principle claims that a person should pay taxes according to
how well that person can shoulder the tax burden
Horizontal equity in taxation refers to the idea that people
in equal conditions should pay equal taxes
The largest source of income for the federal government is
individual income taxes
economies of scale
long-run average total cost falls as the quantity of output increases
When a firm experiences diseconomies of scale,
long-run average total cost increases as output increases
Economies of scale occur when a firm's
long-run average total costs are decreasing as output increases
The most efficient tax possible is a
lump-sum tax
The competitive firm's short-run supply curve is its
marginal cost curve, but only the portion above the minimum of average variable cost
to maximize profits
marginal revenue equals marginal cost
Economists assume that the typical person who starts her own business does so with the intention of
maximizing profits
If a road is congested, then use of that road by an additional person would lead to a
negative externality
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which
profit is maximized
If there is an increase in market demand in a perfectly competitive market, then in the short run
profits will rise
When the marginal tax rate exceeds the average tax rate, the tax is
progressive
The phenomenon of free riding is most closely associated with which type of good?
public goods
When firms have an incentive to exit a competitive market, their exit will
raise the profits of the firms that remain in the market.
Entry into a market by new firms will increase the
supply of the good
. The overuse of a common resource relative to its economically efficient use is called
the Tragedy of the Commons
The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with
the ability-to-pay principle
When calculating a firm's profit, an economist will subtract only
the opportunity costs from total revenue
In the long run, a profit-maximizing firm will choose to exit a market when
total revenue is less than total cost
When firms are neither entering nor exiting a perfectly competitive market,
total revenue must equal total cost for each firm and economic profits must be zero.
Without government intervention, public goods tend to be
underproduced and common resources tend to be over consumed.
If a firm operating in a competitive industry shuts down in the short run, it can avoid paying
variable costs